Chapter 13 bankruptcy is a chapter of bankruptcy that is referred to as a reorganization bankruptcy. This chapter is typically for individuals who have higher incomes as well as property that they want to protect from creditors that may be seeking to seize their assets.
Chapter 13 bankruptcy allows the debtor, or individual who owes the debt, to reorganize their debt and make affordable, typically monthly, payments. There are certain categories of debt that can be discharged in a bankruptcy case.
There are also, however, other debts that must be paid in full within the specified time frame of the bankruptcy repayment plan. There are numerous different factors that can impact how an individual’s debt is reorganized or restructured, including:
- The kind of debt the individual would like to have included. Certain types of debts cannot be discharged, including:
- child support;
- student loans;
- federal, state, or local taxes;
- fines or penalties for breaking the law;
- child support;
- alimony; and
- other specific debts;
- The type of relationship the debtor and the creditor have regarding the debt;
- The debtor’s ability to pay off the amount within a reasonable time period; and
- The final determination of the bankruptcy judge regarding the debt.
How does Chapter 13 Bankruptcy Differ from Other Types of Bankruptcy?
There are numerous differences between a Chapter 13 bankruptcy and other chapters of bankruptcy. For example, there is Chapter 7 bankruptcy, which is referred to as liquidation bankruptcy.
In this chapter of bankruptcy, the eligible debts of the debtor are discharged. However, the individual is required to liquidate some of their property and sell it to satisfy their debt.
Chapter 11 bankruptcy typically involves a high cost to the debtor. This chapter of bankruptcy is typically used by corporations or companies who are attempting to reorganize their debt in order to become profitable again.
An individual debtor may be forced to file a Chapter 11 bankruptcy instead of a Chapter 13 if their debts exceed a maximum amount allowed in a Chapter 13. Chapter 12 bankruptcy may be available if 80% of the individual’s debt incurred is due to operating a family farm or fishery.
The farm can be classified as an individual, a corporation, or a partnership. Chapter 13 bankruptcy allows the debtor to retain their property as well as to cease collection actions from creditors until they can establish a repayment plan.
This repayment plan is created to satisfy the majority of the debtor’s outstanding debt at an affordable amount for a set number of years, typically between 3 and 5 years. If, however, the debtor’s debts exceed $1,184,200 or their unsecured debt exceeds $394,725, then they will not be eligible for a Chapter 13 bankruptcy.
It is important to note that this threshold is subject to change.
Am I Eligible for Chapter 13 Bankruptcy?
There are numerous requirements that an individual is required to satisfy in order to be eligible to file a Chapter 13 bankruptcy, including:
- The debtor or debtors is an individual or a married couple;
- This includes individuals who are self-employed or who operate an unincorporated business;
- Their total secured debts do not exceed $1,184,200;
- Their total unsecured debts do not exceed $394,725;
- The individual has not had a prior bankruptcy petition dismissed within the previous 180 days as a result of their failure to appear or failure to comply with the court; and
- The individual has received credit counseling from an approved provider within 180 days of filing the petition.
What is a Forced Conversion from Chapter 13 to Chapter 7?
A bankruptcy court can order a debtor to convert their Chapter 13 claim to a Chapter 7 claim in certain bankruptcy proceedings. Converting a Chapter 13 to a Chapter 7 bankruptcy is referred to as a forced conversion.
This forced conversion is sanctioned by a court order. The failure to complete this required conversion may result in legal repercussions for the debtor.
The bankruptcy court may only order a forced conversion if there is a valid reason to do so. There are numerous reasons that may justify a court forcing a bankruptcy conversion, including, but not limited to:
- The debtor did not draft a Chapter 13 plan in the allotted period;
- The debtor did not make the required Chapter 13 payments on time; or
- There was a by the debtor that was deemed unreasonable that caused injury to one or more creditors.
It is important to be aware that, when a debtor is making every possible effort to comply, a bankruptcy court will not be likely to order this type of conversion. Examples of this may include the failure to make a payment because of unforeseeable circumstances, such as a medical emergency.
The bankruptcy court, however, may compel an individual to convert from a Chapter 13 to a Chapter 7 if their behavior suggests to the court that they are trying to exploit their creditors in any way.
What is a Chapter 13 Trustee?
When an individual files for Chapter 13 bankruptcy, a trustee may be needed to perform certain tasks. Trustees are neutral third parties that are designated to perform tasks, typically on behalf of a creditor.
The trustee is typically an individual and may be appointed by either the creditors or by the United States Department of Justice. This helps to ensure that all funds are handled in a responsible and neutral manner.
What Tasks Does a Chapter 13 Bankruptcy Trustee Perform?
As previously noted, a Chapter 13 bankruptcy includes the restructuring of the debtor’s finances so that they will be able to begin paying back their creditors. Because of this, many of the Chapter 13 trustee’s tasks involve restructuring of the debtor’s finances.
Some of the tasks a Chapter 13 bankruptcy trustee performs include:
- Reviewing the overall financial plan and repayment structure;
- Receiving payments from the debtor;
- Distributing the payments to creditors;
- Acting as a negotiator or mediator between the two parties;
- Overseeing financial meetings; and
- Reviewing all creditor claims to make sure they are not improper or illegal requests.
The trustee helps to uphold bankruptcy standards and laws. The trustee will notify the court if either party has committed fraud or other violations.
What If I have a Dispute with the Bankruptcy Trustee?
Similar to any other type of trustee arrangement, a bankruptcy trustee is required to follow certain legal standards. This applies especially to the handling of finances when making important financial decisions.
For example, a bankruptcy trustee is not permitted to mingle the debtor’s funds or payments with their own personal funds or bank accounts. In addition, the trustee is not permitted to disclose any private information of any of the parties who are involved in the bankruptcy without their consent.
If a trustee violates any of these trustee duties, it may lead to further legal claims. Once common example of a situation in which a lawsuit arises is when a debtor sues the trustee due to their mishandling of finances that led to financial losses.
In these types of cases, a debtor may receive a damages award that will reimburse them for their losses.
Do I Need a Lawyer for Help with Chapter 13 Trustee Laws?
A bankruptcy trustee is held to very specific standards that govern their duties and responsibilities. It may be in your best interest to consult with a bankruptcy lawyer if you have any issues, questions, or concerns related to bankruptcy and trustee laws.
Your attorney will advise you regarding your legal rights during the bankruptcy process. In addition, if you have to file a legal claim against the trustee in your case, your attorney can help you file your claim and represent you until the issue is resolved.